How to Reform Pension Systems? Comparing Outcomes in Austria and Ireland
| Author | Brenda Gannon,Roman Raab |
| DOI | 10.1177/138826271101300201 |
| Published date | 01 June 2011 |
| Date | 01 June 2011 |
| Subject Matter | Article |
204 Intersentia
HOW TO REFORM PENSION
SYSTEMS? COMPARING OUTCOMES
IN AUSTRIA AND IRELAND
R R* and B G**
Abstract
is paper investigates the pension policies and outcomes of two countries, Austria
and Ireland, representing two di erent welfare models. How do these di erent
systems perform in terms of income adequacy, labour supply incentives for older
workers, and actuar ial fairness? Although there is no ‘optimal’ design for a pension
system, there seems to be a convergence in systems between countries. Countries
with established welfare models that have evolved over time need to rethink the
basic paradigms of their pension policies for the future. is paper contains speci c
policy recommendations about pension reform. We highlight the importance of
behavioural incentives with respect to rais ing average retirement ages, and the need
for government engagement in providing an ade quate retirement income.
Keywords: countr y comparison; demographic change; older workers; pension systems;
retirement polic ies
1. INTRODUC TION
is paper compares Austr ia and Ireland in terms of pension reform outcomes. Is
there an optimal design for pension systems for countries in Europe? We discuss
* Keele Management School, E conomics, Keele Universit y, Sta ordshi re, United Kingdom (prev iously
Irish Centre for So cial Gerontology, Galway, Ireland); e-ma il: r.raab@mngt .keele.ac.uk.
** Leeds Institute of Health Sciences, Academic Unit of Health Economics, University of Leeds,
Leeds, United K ingdom (previously Irish Centre for S ocial Gerontology, Galway, Ireland); e-ma il:
b.gannon@leed s.ac.uk .
e authors wou ld like to acknowledge the Ir ish Social Sciences Platform for f unding, and Kevin
Leyden and two a nonymous referees for thei r valuable comments.
How to Reform Pension Systems? C omparing Outcomes in Aus tria and Ireland
European Jour nal of Social Secu rity, Volume 13 (2011), No. 2 205
a variety of policy options and compare their outcomes in relation to labour force
participation, income adequac y, a nd the actuarial fair ness of pension systems.
Why are pension system policies so prominent in publ ic debate? Common to
all countries in the developed world are two trends. Fi rst, developed countries a re
experiencing an i ncreasingly ageing population. Second, at the same t ime, older
workers are exiting into retirement at younger ages. is imposes huge pressure on
the nances of pension systems that are organised through the intergenerational
transfer of funds. It follows t hat current pension systems are o en not sustai nable in
the long run. ere is therefore an inev itable need for reform. is paper shows how
two very di erent countries, Austria and Ireland, a re dealing with these cha llenges in
reforming their public pensions .
ere is a great variety of pension systems across the world. In addition,
pensions can be provided to meet multiple objectives, e.g. earnings replacement,
minimum income for older people, ta king older workers out of the labour force, and
intergenerational risk sharing. Particular objectives are realised in very di erent
ways and to a very di erent extent. In order to contrast this large variety, we choose
two countries that represent two di erent welfare models. On the one hand, Austria
represents a Bismarckian-ty pe welfare system that relies on a large volume of public
nances. On the other hand, Ireland is an example of a Beveridgean-type welfare
system that makes less use of public nances in its welfare system. Both countries
are small and of sim ilar population siz e. Both countries a re also similar in terms of
national income.
e main di erences emerge a long pension system parameters . Austria has multiple
early retirement progra mmes. Furthermore, public p ensions are the only source of old
age income for most Austrians, and generosity w ith respect to bene ts is rather high.
Occupational and private pensions are ra rely used. Finally, Austria belongs to the sma ll
group of countries le in t he OECD that still have di erent statutory reti rement ages
for men and women. Post-retirement work is o en constrained following the receipt
of a pension. In Ireland, workers cannot obta in early retirement, except on grounds
of disability. e state pension is relatively low and is intended to be complemented by
occupational and private pensions on a voluntary basi s. ere is no gender di erence
in the statutory ret irement age. Furthermore, there are few constra ints on someone
earning whi le in receipt of a pension.
What can we learn in terms of policies from these t wo very di erent countries?
By studying these t wo ‘extreme’ cases, we dis cover that there is no unique policy that
should apply to any one country. Instead, pension provision needs to be embedded
in the overall economic set ting of a country. However, there seems to be a slight
convergence of the two welfare models given demogr aphic and nancing constraints,
as well as old-age poverty is sues. erefore, countries t hat have histor ically adopted
either of the welfare models need to ret hink the basic paradigms of their pension
policies for the future. is paper considers some policy recommendations for
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